Pay Transparency

In Australia, where the gender pay gap among full-time employees currently stands at a little under 15 percent, the opposition Labor Party wants to push this number downward by requiring large companies to publish their gender pay gaps, as the UK and some other European countries already do. In a statement issued on Sunday, deputy opposition leader Tanya Plibersek and Labor’s employment spokesman Brendan O’Connor noted that Australian women working full-time earn about $27,000 per year less than their male colleagues on average, the Guardian reported:

“We must do better,” it said, adding that a Labor government under Bill Shorten would “act to shine a light on the gender pay gap in Australian companies”. Labor would also change the Fair Work Act to prohibit pay secrecy clauses and require the Workplace Gender Equality Agency to publish a list showing whether large companies had undertaken and reported a gender pay gap audit.

Companies already report their gender pay data to the Workplace Gender Equality Agency but Labor would make it public, the statement said. “People will be able to search a gender pay equity portal to find out a company’s overall pay gap, and the pay gaps for managerial and non-managerial staff.”

The Australian Council of Trade Unions backed the proposal, saying it would improve employees’ bargaining power and prevent employers from retaliating against employees for discussing their pay with each other. Prime Minister Scott Morrison, however, pushed back on the proposal, arguing that it might generate problems in the workplace and not actually help close the pay gap.

“You’d want to be confident you’re not setting up conflict in the workplace,” he said. “I don’t want to set one set of employees against another set of employees.” Morrison also pointed out that the country’s gender pay gap had decreased from 17.2 percent to 14.5 percent under his Liberal Party–National Party coalition government, whereas it had grown the last time Labor was in power. Nonetheless, Morrison said in a press conference that he was “open-minded” about the proposal.

Employees today are more likely than ever to demand transparency about compensation practices at their organization. Total rewards leaders agree that pay transparency would benefit the organization in numerous ways. Yet even though everyone seems to be on board, organizations are slower to adopt this practice than you might expect. In our latest research at Gartner, 60 percent of the organizations we surveyed said they had not yet acted on pay transparency at all, while only 14 percent had fully realized it.

So why aren’t we making faster progress toward an outcome all stakeholders agree is the right thing to do? In a session at Gartner’s ReimagineHR event in London last Thursday, Advisory Leader Ania Krasniewska armed the total rewards leaders in attendance with strategies for surmounting obstacles to pay transparency and getting senior leaders and line managers at their organizations on board. Here are some of the most common reasons why organizations shy away from pay transparency, along with some counterarguments HR leaders can use to win over a skeptical CEO:

“It’s just a trend.”

The pressure organizations are facing today to be more transparent about their compensation practices comes from several directions: Millennial employees expect more transparency than previous generations did, employees have more access to (often inaccurate) pay information from outside sources like Glassdoor or PayScale, and governments and the media are advocating transparency as a means of driving pay equity. For an executive wary of pay transparency, it may be tempting to reason that these trends will eventually pass, but there is good reason to believe otherwise.

While Millennials and Gen Z are the employee cohorts most commonly associated with demands for pay transparency, they’re not the only employees who want it. Like other Millennial-driven trends in the workplace today, the younger generation of employees is simply more vocal in demanding things that in fact, employees of all ages would like. Their attitudes also influence their parents, neighbors, and older colleagues. Millennials aren’t the only ones using Glassdoor: Many of the employees who use these external sources to compare their salaries with those of their peers are in senior positions at their organizations. Furthermore, Millennials aren’t going away; they are already the largest segment of the workforce and Gen Z will eventually be even bigger. Gambling that these generations will stop caring about pay transparency later on is a very risky bet.

The rise came after the bosses of America’s largest companies got an average pay rise of 17.6% in 2017, taking home an average of $18.9m in compensation while their employees’ wages stalled, rising just 0.3% over the year. The pay gap has risen dramatically, with some fluctuations, since the 1990s. In 1965 the ratio of CEO to worker pay was 20-to-one; that figure had risen to 58-to-one by in 1989 and peaked in 2000 when CEOs earned 344 times the wage of their average worker. …

The astronomical gap between the remuneration of workers and bosses has been brought into sharper focus by a new financial disclosure rule that forces companies to publish the ratio of CEO to worker pay. Last year, McDonald’s boss Steve Easterbrook earned $21.7m while the McDonald’s workers earned a median wage of just $7,017 – a CEO to worker pay ratio of 3,101-to-one. The average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188-to-one.

A new survey released last week by Willis Towers Watson illustrates the key factors driving US companies to reassess and change their compensation practices. In explaining why they were making these changes, employers cited cost, manager feedback, changes in the marketplace, and employee feedback as the most common motivations. WTW’s Getting Compensation Right Survey, conducted in April 2018, surveyed 1,949 employers worldwide, including 374 US employers whose total workforce comprises more than 5.2 million employees.

Among the US employers, nearly half said they were considering or planning on redesigning their annual incentive plans, while more than a third said they were changing criteria for salary increases. This highlights a trend we’ve been seeing over the past few years, in which employers are rethinking the traditional annual raise and opting for more targeted and differentiated increases or bonuses to reward and incentivize performance. Many employers also told WTW that they were refocusing performance management to include future potential and possession of skills needed to drive the business in the future, as well as introducing recognition programs to provide on-the-spot rewards.

One move many companies are making is toward greater pay transparency, with 53 percent of respondents saying they were planning on or considering increasing the level of transparency around pay decisions. Our latest research at CEB, now Gartner, also finds that transparency is a growing concern among rewards functions. One driver of this trend is the increasing amount of information available to employees and candidates about what other people are earning in their roles, both within their organization and at other organizations, through external sources like Glassdoor or LinkedIn.

In our employee survey, we found that 42 percent of employees who had consulted one of these online sources for pay information had thought about leaving their current employer as a result. These external forms of transparency are making it increasingly important for employers to be more forthcoming about their pay practices and take control of the narrative around compensation at their organization to get ahead of employees who might find (potentially inaccurate) information elsewhere and draw their own conclusions.

German Chancellor Angela Merkel is arguably the world’s foremost example of women’s empowerment: an accomplished scientist turned national leader and one of the most powerful people (not just women) in the world. Notwithstanding Merkel’s achievements and those of other women leaders in German politics, the country lags behind its European peers in closing the gender pay gap. Germany’s pay gap stands at 21.5 percent, according to EU data: the third largest in Europe and well above the EU average of 16.2 percent.

A new law that went into effect in January is meant to help close that gap by allowing employees to request information about wage disparities from their employers, but as Carolynn Look and Elisabeth Behrmann pointed out in a recent Bloomberg feature, the law puts the onus on employees to ask, whereas other legislative efforts, like the UK’s mandatory pay gap reporting and similar laws being considered in France, compel employers to provide this information up front.

A major component of the challenge for Germany is cultural: The term Frauenberuf (women’s job) is still used to describe occupations like nursing, housekeeping, child care, and social work—jobs that are often low-paying, part-time, and lack clear pathways to career advancement, Look and Behrmann note:

Even in fields dominated by women, such as medical assistants, men can get paid 40 percent more. The lower pay, along with more part-time work for women, mean they earn about 50 percent less over their working lives than male peers, according to a 2017 study by the German Institute for Economic Research in Berlin.

Amid growing public and investor concern about major British companies potentially overpaying their top executives, the UK government has been kicking around the idea of instituting a pay ratio reporting rule since last year. The government hinted in April that it would propose the regulation soon, and now it is here. The proposal, which Business Secretary Greg Clark is presenting to Parliament today, will require all companies with more than 250 employees to disclose the ratio between the pay of their CEO and their average or median employee, as well as to explain this difference, the BBC reports:

The new rules, as well as introducing the publication of pay ratios, will also require listed companies to show what effect an increase in share prices will have on executive pay, in order to inform shareholders when voting on long-term incentive plans. … Mr Clark said: “Most of the UK’s largest companies get their business practices right, but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.”

The plans were welcomed by the Investment Association – that represents UK investment managers – as well as business lobby group the CBI and think tank the High Pay Centre. Chris Cummings, chief executive of the Investment Association, said investors wanted greater director accountability and more transparency over executive remuneration.

There are very few talent-related issues that generate as much attention as compensation—in particular, how compensation compares among all the various employees at an organization. Historically, companies have preferred not to share information about compensation out of fear that those who are on the bottom half of the compensation chart will become disappointed and disengaged when they learn that they are earning less than their colleagues. This fear has been a major factor in the business community’s objection to the CEO-employee pay ratio reporting rule that came into force in the US this year: When you publish the salary of the median employee, half your employees inevitably discover that their pay is “below average.”

This idea of hiding compensation for fear of disengaging employees is a relic of the past, however. The reality today is that employees can get a sense of how their compensation stacks up compared to their peers through a growing number of websites that share this information publicly, such as Glassdoor, PayScale, or Salary.com. In other words, employees can already find out how their compensation compares to others and are already talking about it; the question for senior leaders is whether they want to participate in or shape these discussions.

As technology has forced greater transparency in compensation, some companies have decided to actively manage the conversation by proactively revealing to their employees what their co-workers, managers, and senior leaders earn. The New York-based tech company Fog Creek Software is one such organization; eight months ago, it gave its three dozen employees a chance to see what their peers were making. On Bloomberg’s “The Pay Check” podcast this week, Rebecca Greenfield checks in with Fog Creek to see how it went:

Fog Creek’s chief executive officer, Anil Dash, believed … that salary transparency would shine a light on unfair pay practices and ensure things stayed that way. Dash, an entrepreneur, prominent tech blogger and prolific tweeter, is a rare, pro-union, tech CEO who also believes in the old-guard internet principle that information wants to be free. “Transparency is not a cure-all and it’s not the end goal, it’s a step on the way to the goal, which is to be fair in how we compensate everyone,” Dash said. …